Volume 40 Issue 2 Article 3
5-1-2003
The Antitrust-Telecom Connection
The Antitrust-Telecom Connection
Steven Semeraro
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Recommended Citation Recommended Citation
Steven Semeraro, The Antitrust-Telecom Connection, 40 SAN DIEGO L. REV. 555 (2003).
The Antitrust-Telecom Connection
STEVEN SEMERARO*
TABLE OF CONTENTS
I. INTRODUCTION ... 556
II. THE TELECOMMUNICATIONS ACT OF 1996 ... 561
A. Events Leading to the Enactment of the Telecom Act ... 561
B. The Telecom Act’s Local Competition Provisions ... 562
C. The Telecom-Antitrust Complaints ... 564
III. THE LAW OF ANTITRUST-REGULATORY ACCOMMODATION AND THE TELECOM-ANTITRUST CASES ... 567
A. The Existing Law of Antitrust-Regulatory Accommodation ... 567
1. Implied Immunities Are Disfavored ... 568
2. Regulated Conduct Supervised by Public Actors Falls Outside the Scope of the Antitrust Laws ... 569
B. Court and Agency Analysis in the Telecom-Antitrust Cases Rests on These Doctrines ... 573
1. The Second and Eleventh Circuits Rely on the Implied Immunity Doctrine ... 573
2. The Seventh Circuit and Most Lower Courts Implicitly Rely on Government Oversight ... 575
a. The Goldwasser Decision and Its Progeny ... 576
b. Interpreting Goldwasser and Its Progeny ... 579
i. The Fully Contextual Nature of Antitrust Analysis ... 579
ii. Regulation and Government Supervision ... 584
IV. SIX DEGREES OF CONNECTION BETWEEN COMPETITION- ENHANCING,INDUSTRY-SPECIFIC REGULATORY STATUTES
AND THE ANTITRUST LAWS ... 587
A. Distinguishing Existing Doctrine ... 588
B. Developing Accommodation Doctrine for Competition- Enhancing Regulation ... 589
1. Whether Antitrust Enforcement Would Interfere with a Procompetitive Regulatory Program ... 591
a. Focusing on How Imposing Antitrust Duties Would Affect Regulatory Duties ... 591
b. Rejecting Antitrust in Favor of Competition- Enhancing Regulation... 592
2. How Regulation Affects Antitrust ... 593
a. The Neutrality Position ... 596
b. Treating Regulatory Violations as Predatory Acts Where Market Power Is Shown and the Defendant Has Inadequate Procompetitive Justifications ... 596
c. Identifying Predatory Acts Unless a Procompetitive Purpose Is Proven ... 597
d. Acts that Are Predatory Per Se if Market Power Is Proven ... 598
e. Per Se Condemnation ... 598
V. SEPARATION BETWEEN THE TELECOM ACT AND THE ANTITRUST LAWS ... 599
A. Imposing Antitrust Duties Would Not Undermine the Effectiveness of the Telecom Act ... 599
B. The Telecom Act’s Effect on the Antitrust Laws ... 603
1. Rejecting the Extreme Forms of Antitrust- Telecom Connection ... 603
2. Choosing Among the Final Three Degrees of Connection Requires More Careful Analysis ... 604
a. Plaintiffs Must Prove Market Power for ILEC-Specific Duties, But Not for All LEC Duties ... 604
b. Plaintiffs Must Rebut Procompetitive Justifications ... 605
C. Evaluating Specific Antitrust Claims ... 606
VI. CONCLUSION ... 608
I. INTRODUCTION
Courts have always had a special role in making competition policy. The open-textured language of the Sherman Act1 and other antitrust laws
has forced courts to fill a policy-making void that Congress has—with rare exception—shown little desire to take back.2 When Congress has
1. Sherman Antitrust Act, 15 U.S.C. §§ 1–7 (2000). 2. As Robert Bork wrote:
enacted regulatory legislation, it has traditionally relied on methods other than marketplace competition to achieve its goals.
The Telecommunications Act of 19963 breaks from that historical
paradigm. The Act is legislative competition policy-making that stimulates rivalry in local telephone service principally by requiring “incumbent local exchange carriers” (ILECs), the existing local telephone companies, to interconnect with, and provide certain services to “competitive local exchange carriers” (CLECs).4 When market entry
emerged more slowly than many had hoped, CLECs and consumers sued the ILECs. The claims alleged that the ILECs failed to fulfill their duties under the Telecom Act by unlawfully maintaining their monopoly power in the local telephone service market in violation of section 2 of the Sherman Act.5 A CLEC executive described the genesis of one of these
a role as it does in constitutional law. . . . [E]ven if courts accept consumer welfare as their sole guideline, they have been granted an exceptionally broad mandate to make law.
ROBERT H.BORK,THE ANTITRUST PARADOX:APOLICY AT WAR WITH ITSELF 409 (1978) (footnote omitted). While the language of the Clayton Act is somewhat clearer than that of the Sherman Act, the court’s role is no less ambitious because “Congress has indicated its belief that [certain practices] may—not always, but under circumstances deliberately left undefined—injure competition.” Id. Courts are thus left with the goal of making the policy choices. See IA PHILLIP AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW:AN ANALYSIS OF ANTITRUST PRINCIPLES AND THEIR APPLICATION ¶ 240c3 (2d ed. 1997) (recognizing that antitrust cases often turn “on a court’s judgment about the degree of social harm that might result from the challenged practice, the social benefits that might be obtained through that practice, and the availability of significantly less restrictive alternatives”).
3. Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified as amended in scattered sections of 15 U.S.C. and 47 U.S.C.). Throughout this Article, the Telecommunications Act of 1996 is also referred to as “the Telecom Act” or “the 1996 Act.”
4. The preamble to the Act states that it was designed “to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.” Id. The House Conference Report explained that the purpose of the Act was “to provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services . . . by opening all telecommunications markets to competition . . . .” H.R.CONF.REP.NO. 104-458, at 1 (1996).
5. Covad Communications Co. v. Bell Atl. Corp., 201 F. Supp. 2d 123, 129 (D.D.C. 2002); Nicholas Kulish et al., Ruling Opens Baby Bells Up to Suits: Court Lets Customers Sue Local Phone Companies for Antitrust Violations, WALL ST.J., June 21, 2002, at A3 (referring to “dozens of lawsuits Bell competitors have filed against the regional phone companies”); Pulver.Com, Telecom Antitrust Intelligence Report,
cases—though he could have been referring to any of them—by commenting that the ILEC “was trying to put us out of business like they did all the other CLECs . . . . [The conduct of the ILEC] is costing consumers in the states we serve billions of dollars in lost potential savings.”6 The
judicial response to these cases has been perplexing. Each court claims to be applying the same law; all of the judges write with utter confidence in the correctness of their analysis;7 and yet the courts reach two
diametrically opposite results. The Second and Eleventh Circuits have held that the antitrust laws apply to local telephone companies as if the 1996 Act did not exist.8 But the Seventh Circuit and several district
courts have dismissed identical antitrust claims.9 The Supreme Court
recently granted certiorari to resolve this dispute.10
Turn to Antitrust Actions Amid Mounting Frustration with ‘96 Act, XCHANGE MAGAZINE (July 1,2001), at http://www.xchangemag.com/articles/171front.html (identifying recent antitrust cases).
6. Lawyer, supra note 5 (quoting Keith Machen, Vice President of Ntegrity, charging Verizon with antitrust violations).
7. For example, in Covad’s case against BellSouth, Judge Martin recognized that the Federal Communications Commission (FCC) and the Department of Justice (DOJ) had disagreed with the Seventh Circuit’s holding that antitrust claims could not be based on conduct relating to duties created by the 1996 Act. Covad Communications Co. v. BellSouth Corp., No. 1:00-CV-3414, slip op. at 25 (N.D. Ga. July 6, 2001) (recognizing that the DOJ and the FCC believed that antitrust claims “should be available for failing to perform duties under the 1996 Act”). But Judge Martin rejected their views quite abruptly, writing that “[i]f Congress . . . desire[s] to amend the 1996 Act . . . to specifically include antitrust remedies for failing to perform affirmative duties, then [it] may do so. In the meantime, this court’s role is to apply the current, correct and logical interpretation of the 1996 Act and the Sherman Act.” Id.
8. See infra Part III.B.1. The Second Circuit’s holding was limited to cases initiated by consumers. Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 305 F.3d 89, 112 n.19 (2d Cir. 2002) (“Our decision does not address whether LECs seeking to enter the market may ever bring antitrust suits against the ILEC.”). While the Second Circuit reserved judgment with respect to cases filed by CLECs, which represent a majority of the cases, the court’s analysis is mirrored in the Eleventh Circuit’s decision in Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272, 1280 (11th Cir. 2002), and in amicus briefs filed jointly by the Antitrust Division of the DOJ and the FCC in cases that were initiated by competitors. See Brief of Amici Curiae United States and the Federal Communications Commission as Amici Curiae at 13, Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir. 2002) (No. 01-16064-C); Brief for the United States and Federal Communications Commission as Amici Curiae in Support of Appellants at 10–11, Intermedia Communications, Inc. v. BellSouth Telecomms., Inc., (11th Cir. filed Jan. 12, 2001) (No. 01-10224-JJ).
9. See infra Part III.B.2. Judge Tjoflat, in an opinion dissenting from the denial of rehearing en banc in the Eleventh Circuit Covad case, expressed agreement with these courts. Covad Communications Co. v. BellSouth Corp., 314 F.3d 1282, 1288–90 (11th Cir. 2002) (Tjoflat, J., dissenting).
This Article has two purposes: (1) to explain these conflicting results, and (2) to propose a method to determine the appropriate degree of connection between the antitrust laws and an industry-specific regulatory statute that, like the Telecom Act, seeks to enhance competition. The conflicting results in the telecom-antitrust cases arise because the courts are struggling to deal with legislative competition policy-making. The old strains of antitrust-regulatory accommodation doctrine were designed for situations in which the legislature sought to advance public policy goals other than competition.11 By contrast, accommodating the
1996 Act requires the court to determine how best to achieve the single goal of enhancing competition. None of the courts deciding telecom-antitrust cases have recognized that this distinction creates the need for different doctrinal tools.12
Harmonizing antitrust and competition-enhancing, industry-specific regulation requires careful contextual analysis. To say, as the Seventh Circuit has, that the specific duties and regulatory structures created by the Telecom Act displace antitrust scrutiny begs the question: Would displacement of the antitrust laws help achieve the Telecom Act’s goal of stimulating competition in local telephone service? It would be odd for Congress to displace antitrust enforcement if it did not. Similarly, to say, as the Second and Eleventh Circuits have, that antitrust continues to apply as if there were no Telecom Act begs the same question: Would
11. To be sure, regulation has often sought to protect consumers from price gouging, which is one of the goals of antitrust and competition policy. But traditional consumer-welfare-oriented regulation relied on a direct price control mechanism of one sort or another rather than marketplace competition to achieve its goals. Further, competition-enhancing policy has much broader goals than preventing price gouging. See
Fed. Trade Comm’n v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 423–24 (1990). [T]he “Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services.” This judgment “recognizes that all elements of a bargain—quality, service, safety, and durability—and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers.”
Id. (quoting Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978)); N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958) (explaining that antitrust law “rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress”).
simply overlaying antitrust enforcement on top of competition-enhancing regulation advance the goal of spurring competition? It depends. The regulation may carefully structure an industry in ways that could be undone if standard antitrust duties were imposed. In such a case, courts should refrain from applying antitrust law. In other cases, regulation may enable the courts to apply the antitrust laws more aggressively. By declaring that certain conduct is anticompetitive within the regulated industry, the legislature makes competition policy—it creates a bright line that minimizes the concern that aggressive enforcement would chill procompetitive behavior.
This Article explores six ways that courts might account for a competition-enhancing regulatory statute when considering an antitrust challenge. These six degrees of connection range from creating a blanket exemption from antitrust attack to treating violations of the regulatory statute as per se antitrust violations. In choosing among these options, a court should engage in a two-step analysis. First, it should ask whether recognizing antitrust duties concurrently with regulatory duties would reduce the regulatory statute’s effectiveness in fostering competition. If it would, then the court should find that the regulated conduct falls outside the scope of antitrust. If antitrust enforcement would not hinder the regulation’s effectiveness, the court should proceed to the second step and ask how, if at all, the duties created by the regulation should affect antitrust analysis.
A court applying this test in a telecom-antitrust case should find, at the first step, that the 1996 Act would be enhanced if the court also imposed antitrust duties on ILECs. At the second step, the court should find that a plaintiff, who proves that an ILEC with market power has violated a nontrivial regulatory duty imposed by the 1996 Act, is entitled to a presumption that the violation substantially contributed to the maintenance of the ILEC’s market power. The language and structure of the 1996 Act, however, indicate that defendants should retain the right to show that there are procompetitive reasons for violating a duty imposed by the 1996 Act, and plaintiffs should retain the burden of rebutting those justifications.
telecom-antitrust cases because the Telecom Act, unlike the regulation considered in prior cases, is designed to enhance competition. This section then sets out the two-step inquiry to determine the appropriate degree of antitrust-regulatory connection. Part V applies that analysis to the Telecom Act.
II. THE TELECOMMUNICATIONS ACT OF 1996
This Part briefly traces the events leading up to the 1996 Act and describes the Act’s local competition provisions. It then summarizes the various antitrust cases that have been filed against the ILECs.
A. Events Leading to the Enactment of the Telecom Act
A summary of the Telecom Act’s local competition provisions must start with the 1984 breakup of the American Telephone and Telegraph Company (AT&T). Through the early 1980s, virtually all telephone service in the United States was provided by regulated monopolies. By the end of the decade, much had changed. Public and private antitrust cases against AT&T led to a restructuring of the telephony industry under the auspices of a consent decree known as the “modified final judgment” (MFJ).13 That decree sought to stimulate competition in long
distance telephone service by stripping AT&T of its local service monopolies and forcing it to compete on a more level playing field with MCI and other competitive entrants into the long distance telephone service market.14
13. MCI Communications Corp. v. Am. Tel. & Tel. Co., 708 F.2d 1081, 1132–33 (7th Cir. 1983) (holding that local distribution facilities were “essential facilities” and therefore AT&T must provide MCI access to them); United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 195–200 (D.D.C. 1982), aff’d mem. sub nom., Maryland v. United States, 460 U.S. 1001 (1983) (approving a consent decree that imposed on local service providers a duty to share access to local telephone networks with competitive long distance providers). For an analysis of the legal theories undermining the cases see Roger G. Noll & Bruce M. Owen,The Anticompetitive Uses of Regulation: United States v. AT&T, in THE ANTITRUST REVOLUTION 290, 295–326 (John E. Kwoka, Jr. & Lawrence J. White eds., 1989).
The MFJ divided AT&T’s local service operations into seven geographically separate companies.15 Each was a monopoly provider of
local service in its own region, but the decree prohibited these local service providers from competing in the long distance market.16 The
MFJ left local service in the hands of monopoly providers because the government then believed that efficient competition in the local market was not possible.17 By the 1990s, technological advancements had
undermined the MFJ’s assumption that competition could not exist at the local level.18 Congress concluded, however, that local competition
would be unlikely to emerge in the short term without industry-specific legislation.19
B. The Telecom Act’s Local Competition Provisions
In 1996 Congress acted. The Telecom Act supplanted the MFJ with a new framework designed to increase competition throughout the telecommunications industry, but particularly with respect to local telephone service.20 The Act prohibited states from enforcing regulatory
statutes that blocked competitive entry into local service markets21 and
imposed a series of affirmative duties on local telephone companies, beginning with a general duty to interconnect.22 The Act also imposed
specific duties including:
15. Id. at 141, 142 & n.41. 16. Id. at 143.
17. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 413–14 (1999) (Breyer, J., concurring in part and dissenting in part); Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 305 F.3d 89, 93–94 (2d Cir. 2002) (explaining that “[t]he rationale for allowing monopolies in the local phone service market was the belief that having more than one local provider would lead to unwarranted duplication in the physical connecting wires through which local calls are transmitted”); United States v. W. Elec. Co., Inc., 673 F. Supp. 525, 537–38 (D.D.C. 1987); PETER HUBER ET AL.,THE GEODDESIC NETWORK II: 1993REPORT ON COMPETITION IN THE TELEPHONE INDUSTRY 2.3–2.5 (1992).
18. Iowa Utils. Bd., 525 U.S. at 371 (“Technological advances . . . have made competition among multiple providers of local service seem possible . . . .”).
19. In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 FCC Rcd. 15,508 (1996).
[T]he removal of statutory and regulatory barriers to entry into the local exchange and exchange access markets, while a necessary precondition to competition, is not sufficient to ensure that competition will supplant monopolies. . . . Congress addressed these problems in the 1996 Act by mandating that the most significant economic impediments to efficient entry into the monopolized local market must be removed.
Id.
20. See supra Part I; supra notes 4–5 and accompanying text.
21. 47 U.S.C. § 253(a) (2000); seeIowa Utils. Bd., 525 U.S. at 416 (Breyer, J., concurring in part and dissenting in part) (explaining that “the Act permits new local entry by dismantling existing legal barriers that would otherwise inhibit it”).
(1) a ban on prohibiting the resale of telephone service,
(2) a requirement that customers who switch carriers be allowed keep their telephone numbers,
(3) a prohibition on discriminatory access requirements, such as the need to dial more numbers with certain providers,
(4) a duty to share access to rights of way for cable or wire, and (5) a duty to enter “reciprocal compensation arrangements for the
transport and termination of telecommunications.”23
In addition to these general duties placed on all competitors in the local service market, Congress imposed additional obligations on the ILECs. It explicitly required them to negotiate in good faith with respect to the generally applicable requirements of the Act,24 and it created five
specific positive duties:
(1) to interconnect with potential competitors “at any technically feasible point within the carrier’s network . . . that is at least equal in quality to that provided by the local exchange carrier to itself” or any other party,
(2) to provide potential competitors with unbundled access—at a cost-based royalty plus reasonable profit—to elements of the ILEC’s own network,
(3) to offer for resale at wholesale rates any service that the ILEC provides to its customers,
(4) to notify other carriers of changes to the network that would affect interoperability with other networks, and
(5) to rent potential competitors the space needed for their interconnection and other necessary equipment.25
Recognizing that these provisions would require extensive cooperation among telecommunications providers, Congress required an ILEC to enter negotiations with a CLEC whenever interconnection was requested.26
The parties were permitted, but not required, to ask state regulators to participate as mediators in pursuit of a voluntary agreement.27 If an
agreement was not reached between 135 and 160 days after the initial request, either party was empowered to seek compulsory arbitration by
state regulators, who must then resolve all open issues within nine months of the initial request.28 In all events, state regulatory commissions must
approve all agreements and the FCC was empowered to step in if a state commission failed to fulfill its obligations.29 Once an agreement was in
place, the specific terms of the agreement rather than the language of the statute would govern the relationship between the ILEC and the CLEC.30
The 1996 Act sought to encourage the ILECs to comply with the duties it imposed by permitting an ILEC to provide long distance service to its own local customers if it demonstrated that its local telephone service market was open to competition.31 To meet this obligation, an
ILEC had to make available a “competitive checklist” of interconnection and related services.32 While this potential for entry into the long
distance market provided a “carrot” to encourage ILECs to cooperate with competitors in local service markets, the 1996 Act was remarkably short of “sticks” to either compel compliance if an ILEC had little interest in providing long distance service or to ensure continued compliance once an ILEC satisfied the competitive checklist.33
C. The Telecom-Antitrust Complaints
Consumers and CLECs have charged the ILECs with monopolizing the local telephone service market by frustrating the procompetitive aims of the 1996 Act and thereby maintaining their own monopolistic position. To date, courts have ruled on at least a dozen motions to dismiss antitrust cases based on violations of the 1996 Act.34 The cases
28. Id. § 252(b). 29. Id. § 252(e).
30. Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 305 F.3d 89, 103 (2d Cir. 2002) (explaining that “[w]hile the duties regulating ILECs enumerated in subsections (b) and (c) of section 251 appear at first glance to be freestanding, in practice, section 251 envisions that these duties will be implemented through state approved contracts between the [CLEC] and the ILEC”).
31. 47 U.S.C. § 271(b)(1), (c), (d)(3). The 1996 Act immediately permitted an ILEC to compete to provide long distance service to customers in regions in which it did not provide local service. Id. § 271(b)(2).
32. Id. § 271(c)(2)(B).
33. Joel I. Klein, The Race for Local Competition: A Long Distance Run, Not a Sprint, Address Before the American Enterprise Institute 7 (Nov. 5, 1997), at
http://www.usdoj.gov/atr/public/speeches/1268.htm (then-Assistant Attorney General for the Antitrust Division of the DOJ describing the carrot and stick approach of the 1996 Act as follows: “As for the ‘sticks,’ there are real questions at this point; the Act itself calls for no real penalties for non-compliance . . . .”).
span the country. Potential competitors in local telephone services sued BellSouth, Verizon, and Pacific Bell in Florida, Virginia, and California, respectively. A provider of high speed Internet access sued BellSouth and Bell Atlantic in Georgia and the District of Columbia. And telephone service consumers filed class actions against Ameritech and Bell Atlantic in Chicago and New York. The allegations in each case are essentially identical, that the ILECs were complying with the 1996 Act, if at all, in the most grudging way possible in order to stifle competition. Some of the complaints highlight that this conduct violates the Act,35 while others focus on more traditional antitrust theories36—the
refusal to deal37 and the essential facilities38 doctrines—but at root, all of
the cases advanced essentially the same monopoly maintenance claim.
BellSouth Telecomms., Inc., No. 99-1706-CIV-SEITZ, 2001 U.S. Dist. LEXIS 23816 (S.D. Fla. June 8, 2001); MGC Communications, Inc. v. BellSouth Telecomms., Inc., 146 F. Supp. 2d 1344 (S.D. Fla. 2001); Intermedia Communications, Inc. v. BellSouth Telecomms., Inc., 173 F. Supp. 2d 1282 (M.D. Fla. 2000); Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 123 F. Supp. 2d 738 (S.D.N.Y. 2000), aff’d in part, vacated in part, 305 F.3d 89 (2d Cir. 2002), cert. granted, 123 S. Ct. 1480 (2003) (limited to the question: “Did the Court of Appeals err in reversing the District Court’s dismissal of respondent’s antitrust claims?”); Goldwasser v. Ameritech Corp., No. 97-C-6788, 1998 WL 60878 (N.D. Ill. Feb. 4, 1998) (dismissing the consumer class action complaint), aff’d on other grounds, 222 F.3d 390 (7th Cir. 2000). In other cases, courts refused to dismiss antitrust claims based on violations of the Act. Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir. 2002); Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 294 F.3d 307, 311 (2d Cir. 2002) (consumer case reserving judgment on competitor claims); Davis v. Pac. Bell, 204 F. Supp. 2d 1236, 1242 (N.D. Cal. 2002) (agreeing with Goldwasser and its progeny that “a violation of the Telecommunications Act ‘does not automatically equate to a violation of the Sherman Act,’” but holding “that an allegation that a defendant violated the Telecommunications Act in a ‘predatory’ manner as defined in Aspen Skiing states a cause of action under the Sherman Act”); Stein v. Pac. Bell Tel. Co., 173 F. Supp. 2d 975, 985–86 (N.D. Cal. 2001) (same, but dismissing with leave to amend because the claim, as alleged, failed to attribute damages to the plausible antitrust claim); Electronet Intermedia Consulting, Inc. v. Sprint-Fla., Inc., No. 4:00-CV-0176-RH (N.D. Fla. Sept. 20, 2000).
35. See, e.g., Goldwasser, 222 F.3d at 394–95; Supra Telecomms. & Info. Sys., 2001 U.S. Dist. LEXIS 23816, at *9, *14.
36. See, e.g., Cavalier Tel., 208 F. Supp. 2d at 611. The court explained that while the plaintiff “avoids such tell-tale references [to the 1996 Act] in its Complaint, it is nevertheless clear that [it] alleges nothing more than violations of duties imposed on Verizon by the 1996 Act.” Id. at 613. That the plaintiff “did not characterize its allegations as violations of the 1996 Act,” the court explained, was “beside the point. Such a shallow interpretation of the relationship between the 1996 Act and antitrust law would relegate the matter to a mindless word game played out at the pleading stage . . . . The correct test is whether the factual allegations contained in the Complaint amount to antitrust violations.” Id.
Covad Communications’ allegations against BellSouth are illustrative. The 1996 Act required the ILECs to make space available on their premises as necessary for interconnection, a requirement known as collocation.39 While BellSouth entered interconnection agreements with
Covad, the new competitor accused BellSouth, inter alia, of: (1) “regularly misrepresent[ing] the availability of space,” (2) ”severely delay[ing] Covad’s application for collocation by months,” and (3) “strategically understaffing its wholesale divisions and refusing to develop electronic systems for placing orders.”40 As a result of these
alleged improprieties, Covad claimed that BellSouth had intentionally “thwarted Covad’s aggressive first-to-market strategy, caused [it] to lose customers, and devastated [its] ability to deliver high quality service” in competition with BellSouth.41
In an unregulated market, these claims would state a cause of action under section 2 of the Sherman Act. The plaintiffs alleged both elements of a section 2 claim—that the defendants had (1) monopoly power in the relevant market for local telephone service and (2) engaged in predatory acts—acts intended to exclude competition with no procompetitive purpose or legitimate business justification.42 The
question for the courts is whether the existence of the 1996 Act alters that conclusion. The Second and Eleventh Circuits and the enforcement agencies have said no. But the Seventh Circuit and a majority of district courts have dismissed these antitrust claims on the pleadings.
39. 47 U.S.C. § 251(c)(6) (2000).
40. Covad Communications Co. v. BellSouth Corp., No. 1:00-CV-3414, slip op. at 4 (N.D. Ga. July 6, 2001); see also Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 305 F.3d 89, 95 (2d Cir. 2002) (where the plaintiff alleged that Bell Atlantic discriminated in favor of its own customers); Cavalier Tel., 208 F. Supp. 2d at 612 (explaining Cavalier’s allegations “that Verizon mis-routed Cavalier’s calls, . . . supplied Cavalier with an inferior Web interface for use in ordering loops, . . . and . . . intentionally made the billing process for loops costly for its competitors”).
41. Covad, No. 1:00-CV-3414 at 4; see also Goldwasser v. Ameritech Corp., 222 F.3d 390, 394–95 (7thCir. 2000) (alleging that Ameritech engaged in twenty specific exclusionary practices, each of which amounted to a violation of a duty imposed under the 1996 Act); Supra Telecomms. & Info. Sys., Inc. v. BellSouth Telecomms., Inc., No. 99-1706-CIV-SEITZ, 2001 U.S. Dist. LEXIS 23816, at *9 (S.D. Fla. June 8, 2001) (alleging that BellSouth’s refusal to provide access hindered competition with BellSouth directly and also made future competition more difficult by destroying business relationships between Supra and its customers).
III. THE LAW OF ANTITRUST-REGULATORY ACCOMMODATION AND THE TELECOM-ANTITRUST CASES
This Part reviews existing antitrust-regulatory accommodation law and explains that the Supreme Court has misleadingly developed two lines of doctrine: (1) implied immunity, which is said to focus on conflict, and (2) antitrust state action, which looks to government supervision.43 In fact, the Supreme Court cases turn on the presence of
official oversight of anticompetitive conduct allegedly serving the noncompetition public policy goals of industry-specific regulatory statutes. Conflict, as that term is normally understood, is not a critical factor. After reviewing the Supreme Court cases, this Part shows that the Second and Eleventh Circuits have mistakenly relied on the absence of conflict, while the Seventh Circuit has, perhaps unconsciously, relied on the presence of supervision. As Part IV explains, this doctrine was developed to accommodate antitrust and regulation that serves a goal other than competition. Neither approach is adequate where regulation, like the Telecom Act, is intended to enhance competition.
A. The Existing Law of Antitrust-Regulatory Accommodation
Historically, the courts have employed two different lines of authority to determine the impact of industry-specific regulation on the antitrust laws. Particularly in cases of federal regulation, the courts have employed the implied immunity doctrine, which holds that a conflict between a regulatory scheme and the Sherman Act will block antitrust scrutiny of
43. A third approach to antitrust-regulatory accommodation is known as the
Keogh or filed rate doctrine. It holds that a private treble damage action will not lie when the plaintiff attacks a rate that has been filed and approved by a regulatory body even if the rate was collusively set, and the plaintiff proves that it would have been lower absent the collusion. See Keogh v. Chi. & N.W. Ry. Co., 260 U.S. 156, 160–62 (1922). While some of the telecom-antitrust cases have mentioned this doctrine, for example,
Goldwasser, 222 F.3d at 402, it has no relevance to the argument advanced here. The
the defendant’s conduct.44 In cases of state regulation, the courts have
asked whether conduct that would violate the antitrust laws furthers private interests or the state’s regulatory vision. This doctrine, known as antitrust state action, holds that conduct that is (1) undertaken pursuant to a state policy to displace competition with regulation and (2) actively supervised by governmental actors will be deemed to serve the state’s regulatory vision and will not be scrutinized under the antitrust laws.45
While these two lines of authority appear to ask quite different questions, the holdings in the cases turn on a single issue: whether the legislature has provided for sufficient governmental oversight of potentially anticompetitive conduct. Where it has, antitrust scrutiny has been deemed unnecessary.
1. Implied Immunities Are Disfavored
Implied antitrust immunities as a result of industry-specific regulation are said to be “strongly disfavored.”46 The U.S. Supreme Court has explained
that the antitrust laws embody a “fundamental national economic policy” in favor of competition.47 While Congress may put that policy aside in pursuit
of other public policy goals, in the absence of specific language, courts assume that Congress intended to limit antitrust enforcement only to the minimum extent necessary to achieve some alternative public policy goal.48
44. Seeinfra Part III.A.1. 45. See infra Part III.A.2.
46. SeeSquare D, 476 U.S. at 421 (explaining that “exemptions from the antitrust laws are strictly construed and strongly disfavored”).
47. Nat’l Gerimedical Hosp. & Gerontology Ctr. v. Blue Cross, 452 U.S. 378, 388 (1981) (quoting Carnation Co. v. Pac. Westbound Conference, 383 U.S. 213, 218 (1966)). 48. In National Gerimedical Hospital, the Court summarized the implied immunity doctrine as follows:
The antitrust laws represent a fundamental national economic policy. Implied antitrust immunity is not favored, and can be justified only by a convincing showing of clear repugnancy between the antitrust laws and the regulatory system. Repeal is to be regarded as implied only if necessary to make the [subsequent law] work, and even then only to the minimum extent necessary. This is the guiding principle to reconciliation of the two statutory schemes.
Id. at 388–89 (alteration in original) (internal quotations and citations omitted); see also Square D, 476 U.S. at 421; United States v. Phila. Nat’l Bank, 374 U.S. 321, 350–51 (1963); Silver v. N.Y. Stock Exch., 373 U.S. 341, 357 (1963); United States v. McKesson & Robbins, Inc., 351 U.S. 305, 316 (1956).
The Court has employed the implied immunity doctrine to justify the narrow interpretation of regulatory statutes that explicitly state an intent to immunize certain conduct from antitrust attack. See, e.g., Fed. Mar. Comm’n v. Seatrain Lines, Inc., 411 U.S. 726, 733 (1973); Carnation Co. v. Pac. Westbound Conference, 383 U.S. 213, 218 (1966).
For example, in Silver v. New York Stock Exchange,49 the plaintiff
brought antitrust claims against the Exchange and its members for collectively refusing to provide private communication lines connecting the plaintiff’s offices to members of the Exchange.50 These lines were
alleged to be essential to the firm’s ability to compete effectively,51 and
outside the context of a regulated industry, the Exchange members’ concerted refusal to provide the lines to nonmembers would have violated the antitrust laws.52
The Exchange argued that its conduct should be exempt because the Securities Exchange Act of 1934 required it to regulate its members.53
The Second Circuit agreed because the Exchange’s conduct “was within the general scope of the authority of the Exchange as defined by the 1934 Act.”54 But the Supreme Court reversed, holding that “a general
power to adopt rules” that might have anticompetitive effects does not mean that “particular applications of such rules” will never violate the antitrust laws.55 An exemption from antitrust scrutiny could be implied
“only if necessary to make the Securities Exchange Act work, and even then only to the minimum extent necessary.”56 After reviewing the
application of the rule in the case before it, the Court concluded that the Exchange’s conduct was not necessary to make the Exchange Act work, and held that antitrust scrutiny was appropriate.57
2. Regulated Conduct Supervised by Public Actors Falls Outside the Scope of the Antitrust Laws
Silver is often read to require a search for conflict between the regulatory legislation and the antitrust laws. In fact, however, the presence or absence of a conflict has little to do with the decision whether to apply the antitrust laws to the regulated industry. Indeed, the conflict in Silver could not have been more clear. The rule directly
antitrust laws wholly inapplicable to that industry.
Id.
49. 373 U.S. at 341. 50. Id. at 344–45. 51. Id. at 344–45, 348. 52. Id. at 345.
53. 15 U.S.C. § 78a–mm (1997). 54. Silver, 373 U.S. at 346–47. 55. Id. at 357, 367.
restrained competition that the antitrust laws would otherwise require. The result in Silver was dependent not on the absence of conflict, but on a lack of direct governmental oversight of the challenged conduct. The Securities and Exchange Commission (SEC) had the power to review the Exchange’s rules, but not specific applications of those rules.58 Given
the private genesis of the Exchange’s anticompetitive decisions and the lack of governmental oversight, a complete exemption from antitrust scrutiny would have “defeat[ed] the congressional policy reflected in the antitrust laws without serving the policy of the Securities Exchange Act.”59 But, the Court stressed, if review of Exchange self-regulation
were provided by a governmental entity, “a different case as to antitrust exemption would be presented.”60
In Gordon v. New York Stock Exchange, Inc.,61 the Court encountered
that “different case,”62 challenging the Exchange’s collective setting of
commissions. As in Silver, the regulation (1) granted the Exchange the self-regulatory power necessary to take the challenged action, and (2) contemplated that anticompetitive effects might flow from that action in the process of serving other public policy goals. In contrast to Silver, however, the SEC had the power to oversee rate setting and had actively supervised the process.63 As a result, the Court held that the Exchange’s
58. Id. at 357–58. 59. Id. at 360.
60. Id.; see also Nat’l Gerimedical Hosp. and Gerontology Ctr. v. Blue Cross, 452 U.S. 378, 389–91 (1981) (explaining that “[i]ntent to repeal the antitrust laws is much clearer when a regulatory agency has been empowered to authorize or require the type of conduct under antitrust challenge”); cf. United States v. Phila. Nat’l Bank, 374 U.S. 321, 351–52 (1963) (applying antitrust laws despite governmental regulation, and explaining that “the range and scope of administrative powers under the Bank Merger Act bear little resemblance to those involved” in a prior case where the antitrust laws were held inapplicable).
61. 422 U.S. 659 (1975).
62. Id. at 685 (“It is patent that the case presently at bar is, indeed, that ‘different case’ to which the Court in Silver referred.”).
63. The Court explained that “[i]n contrast to the circumstances of Silver,” the SEC here had “direct regulatory power over” collective rate setting. Id. “Since 1934,” the Court observed, “all rate changes have been brought to the attention of the SEC, and it has taken an active role in review of proposed rate changes . . . .” Id. In distinguishing a lower court securities case that found no immunity, the Court explained that “there was no evidence presented regarding the extent of SEC review of the challenged rule.” Id. at 686–87. The Court distinguished Philadelphia National Bank on similar grounds: “there was an absence of continuing oversight by the Comptroller General of the Currency.” Id. at 689–90 n.14. Finally, Justice Douglas emphasized the point in his concurring opinion:
The mere existence of a statutory power of review by the SEC over fixed commission rates cannot justify immunizing those rates from antitrust challenges. . . . Only if the SEC is actively and aggressively exercising its powers of review and approval can we be sure that fixed commission rates are being monitored in the manner which Congress intended.
collective rate setting was not subject to antitrust scrutiny.64
The federal regulation cases demonstrate that the deciding factor is the degree of government oversight rather than the extent of the conflict between regulatory and antitrust duties.65 But what does governmental
involvement have to do with accommodating two statutory regimes? The answer rests on an understanding of the nature of antitrust as a mechanism to control privately motivated business decisions, but not governmental conduct. Where public actors oversee regulated conduct, the activity loses its character as privately motivated conduct. Antitrust is therefore inapplicable.66
This characterization of antitrust-regulatory accommodation has received more attention in cases and commentary when courts review state regulation.67 The Court’s 1943 decision in Parker v. Brown68held
64. Id. at 685–86. In United States v. National Ass’n of Securities Dealers, Inc., 422 U.S. 694 (1975), the Court held the antitrust laws inapplicable to certain mutual fund activities. Id. at 733. The Court explained:
There can be little question that the broad regulatory authority conferred upon the SEC by the Maloney and Investment Company Acts enables it to monitor the activities questioned . . . and the history of Commission regulations suggests no laxity in the exercise of this authority. To the extent that any of appellees’ ancillary activities frustrate the SEC’s regulatory objectives it has ample authority to eliminate them.
Id. at 734 (footnotes omitted). Similarly, in Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S. 363 (1973), the Court held regulated conduct outside the scope of antitrust law. Id. at 387. The Court explained:
[W]here, as here, the [governmental body] authorizes control of an air carrier to be acquired by another person or corporation, and where it specifically authorizes as in the public interest specific transactions between the parent and the subsidiary, the way in which that control is exercised in those precise situations is under the surveillance of the [governmental body], not in the hands of those who can invoke the sanctions of the antitrust laws.
Id. at 387.
65. For example, the Court in Square DCo. v. Niagara Frontier Tariff Bureau
permitted antitrust attacks on regulated rates that were filed and approved, although it did prohibit the award of damages. 476 U.S. 409, 422 (1986); see alsoNat’l Gerimedical Hosp., 452 U.S. at 389 (explaining that “[i]ntent to repeal the antitrust laws is much clearer when a regulatory agency has been empowered to authorize or require the type of conduct under antitrust challenge,” and “antitrust repeals are especially disfavored where the antitrust implications of a business decision have not been considered by a governmental entity”).
66. See Steven Semeraro, Demystifying Antitrust State Action Doctrine, 24 HARV. J.L.&PUB.POL’Y 203, 236–39 (2000); Einer Richard Elhauge, The Scope of Antitrust Process, 104 HARV.L.REV. 667, 672, 697–703 (1991).
that federal law did not preempt a state regulatory program because the Sherman Act was not meant “to restrain state action or official action directed by a state.”69 The doctrine is governed by a two-part test that
asks whether the state (1) “clearly articulated” its intent to displace competition with regulation, and (2) “actively supervised” the private parties in the regulated market.70
As applied, the test asks first whether the state has articulated a general intent to displace the forces of the free market with some form of state regulation.71 To be considered state action in this context, an
anticompetitive byproduct of economic regulation need only be a foreseeable result of a particular statute; it need not be compelled or even necessary to the regulatory scheme.72 The so-called clear articulation
prong of the test requires a party to point to legislation that has been (or, if not yet interpreted, could reasonably be) read by state courts, agencies, or municipalities to embody the view that the public interest would be served if a regulatory scheme displaced the forces of the free market. The existence of a statute meeting this criterion ensures that the state legislature at least conceived of the possibility that the authorized regulation would have anticompetitive effects.
Read in isolation, the first prong of this test appears to contradict the premise that antitrust immunities are disfavored because it interprets intent to displace competition so liberally. For a private party’s conduct to be exempt from antitrust scrutiny, however, it must also be actively supervised by governmental officials in a manner sufficient to ensure that the state’s view of the public interest—rather than the private interests of the regulated parties—is served.73 “Actual state involvement,
not deference to private [anticompetitive] arrangements under the general auspices of state law, is the precondition for [application of the doctrine].”74 The active supervision requirement ensures that the challenged
“anticompetitive acts were truly the product of state regulation.”75
Under this view, antitrust rules limit only the ability of a private
regulation is quite similar to the rationale for an antitrust immunity from federal regulation.”).
68. 317 U.S. 341 (1943). 69. Id. at 351.
70. See S. Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48, 57 (1985); Town of Hallie v. City of Eau Claire, 471 U.S. 34, 43–44 (1985); Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105–06 (1980).
71. SeeMidcal Aluminum, 445 U.S. at 105.
72. SeeS. Motor Carriers Rate Conference, 471 U.S. at 61; Town of Hallie, 471 U.S. at 41–46.
73. Fed. Trade Comm’n v. Ticor Title Ins. Co., 504 U.S. 621, 633 (1992); Patrick v. Burget, 486 U.S. 94, 100–01 (1988).
business to enter anticompetitive agreements or take actions that tend to create or maintain a monopoly. Antitrust places these limits on private conduct not because agreements and monopolies are inherently undesirable in all contexts. Unrestrained competition also can have negative public welfare effects.76 Antitrust doctrine holds only that the
forces of competition must prevail over the private decisions of presumptively self-interested business persons because private actors will be tempted to use collusion or monopoly power to serve their own interests. But when a public-interested actor makes the decision to displace free market forces, antitrust principles are not offended because governmental actors may be trusted to choose anticompetitive solutions only when they are in the public interest.
B. Court and Agency Analysis in the Telecom-Antitrust Cases Rests on These Doctrines
The following Subsections show how the courts deciding the telecom-antitrust cases have relied on these two doctrines.
1. The Second and Eleventh Circuits Rely on the Implied Immunity Doctrine
In Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atlantic Corp. and
Covad Communications Co. v. BellSouth Corp., the lower courts
dismissed the antitrust claims on the ground that antitrust does not require a firm, even a monopolist, to help its competitors.77 On appeal,
the courts correctly recognized that the Sherman Act sometimes does impose positive duties on monopolists.78 Because the complaint alleged
all the elements of a section 2 case, it could not be dismissed unless the 1996 Act immunized Bell Atlantic from antitrust attack.
The Second and Eleventh Circuits—in keeping with the arguments in
76. Congress has implicitly recognized this by creating explicit antitrust exemptions, silently acquiescing in judicially created exemptions, and granting broad discretion to the courts to shape antitrust duties. Semeraro, supra note 66, at 236–39.
77. Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 305 F.3d 89, 96 (2d Cir. 2002); Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272, 1278 (11th Cir. 2002).
Antitrust Division and FCC amicus filings in other cases—followed the conflict-centered dicta in the Supreme Court implied immunity cases and held that the Telecom Act did not block antitrust scrutiny.79
Because the Telecom Act’s express purpose is to engender just the sort of competition that the antitrust laws are designed to preserve, there is obviously no conflict.80 The Second Circuit explained that such a
conclusion is “unambiguously” established by the Act’s antitrust savings clause.81 Neither the courts nor the agencies consider the effect of
79. Law Offices of Curtis V. Trinko, 305 F.3d at 109; see Covad Communications Co. v. BellSouth Corp., 299 F.3d at 1280; see also Brief of Amici Curiae United States and the Federal Communications Commission as Amici Curiae at 10, Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (No. 01-16064-C); Brief for the United States and Federal Communications Commission as Amici Curiae in Support of Appellants at 8, Intermedia Communications, Inc. v. BellSouth Telecomms., Inc. (11th Cir. filed Jan. 12, 2001) (No. 01-10224-JJ).
80. Law Offices of Curtis V. Trinko, 305 F.3d at 109; Covad Communications Co. v. BellSouth Corp., 299 F.3d at 1281–82 (supporting conclusion with references to legislative history and presidential and FCC statements); Brief of Amici Curiae United States and the Federal Communications Commission as Amici Curiae at 14–15, Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (No. 01-16064-C) (contrasting the Telecom Act with a statute that empowers “a regulatory agency . . . to approve, in furtherance of other regulatory goals, anticompetitive conduct that would otherwise violate the antitrust laws”); Brief for the United States and Federal Communications Commission as Amici Curiae in Support of Appellants at 10–12, Intermedia Communications (No. 01-10224-JJ).
81. Law Offices of Curtis V. Trinko, 305 F.3d at 109. The 1996 Act actually contains two savings clauses: (1) “nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws,” Pub. L. No. 104-104, § 601, Stat. 143 (1996); and (2) “This Act and the amendments made by this Act shall not be construed to modify, impair, or supersede Federal, State, or local law unless expressly so provided in such Act or amendments.” 47 U.S.C. § 152(c)(1) (2000). The legislative history of the Act also supports this understanding by recognizing as an “underlying theme” of the Act that the FCC “should be carrying out the policies of the Communications Act, and the DOJ should be carrying out the policies of the antitrust laws.” H.R.CONF.REP.NO. 104-458, at 201 (1996). The House Conference Report also confirmed that the Act’s savings clauses “[prevent] affected parties from asserting that the [Act] impliedly preempts other laws.” Id.
government oversight. Instead, the courts declared that the relationship between the plaintiffs’ allegations and the Telecom Act was simply irrelevant to antitrust analysis.82 “If there is no . . . implicit immunity,”
the Second Circuit explained, “as long as a set of allegations states an antitrust action on its own terms, the fact that it closely resembles an action brought under another statute in itself is unproblematic.”83
2. The Seventh Circuit and Most Lower Courts Implicitly Rely on Government Oversight
The following Subsections analyze the much more confusing analysis in Goldwasser v. Ameritech Corp.84 and the cases that follow it. These
courts explicitly reject any reliance on the implied immunity doctrine. They instead hold that a violation of a duty imposed by the 1996 Act cannot be anticompetitive within the meaning of the Sherman Act.85
The final Subsections consider two explanations for this result: (1) that antitrust does not impose positive duties to assist potential competitors, and (2) that conduct actively supervised by governmental actors falls outside the scope of antitrust scrutiny. They conclude that the latter analysis provides the best rationale for the results in these cases. As explained in Part IV, however, existing antitrust-regulatory accommodation doctrine is inadequate where the regulation seeks to enhance competition.
way alter the application or scope of existing antitrust law.”); cf. Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409, 418, 419 & n.23, 420 & n.27 (1986) (recognizing that the antitrust savings clause in the Reed-Bulwinkle Act and the Motor Carrier Act preserved antitrust limitations of the filed rate doctrine).
82. Law Offices of Curtis V. Trinko, 305 F.3d at 109 (holding that “there is no requirement that an allegation that otherwise states an antitrust claim must not rely on allegations that might also state a claim under another statute”); see also id. at 111 (holding that “controlling case law does not support the theory that specific legislation meant to encourage competition necessarily takes precedence over the general antitrust laws.”); Covad Communications Co. v. BellSouth Corp., 299 F.3d at 1282 (“[W]e cannot agree with Goldwasser to the extent that it is read to say that a Sherman Act antitrust claim cannot be brought as a matter of law on the basis of an allegation of anti-competitive conduct that happens to be ‘intertwined’ with obligations established by the 1996 Act.”).
83. Law Offices of Curtis V. Trinko, 305 F.3d at 109; see also Covad Communications Co. v. BellSouth Corp., 299 F.3d at 1282–83.
84. 222 F.3d 390 (7thCir. 2000), aff’g on other grounds, No. 97-C-6788, 1998 WL 60878 (N.D. Ill. Feb. 4, 1998).
a. The Goldwasser Decision and Its Progeny
In Goldwasser, the Seventh Circuit upheld the dismissal of an antitrust claim by local telephone service customers against Ameritech.86 On its
face, the complaint alleged the elements necessary to prove that Ameritech violated section 2 of the Sherman Act.87 Local telephone
service undoubtedly forms a relevant antitrust market, and Ameritech certainly had monopoly power in that market by virtue of its overwhelming market share and the high barriers to entry into local telephone service. The only real question was whether the alleged conduct constituted anticompetitive predatory conduct or procompetitive conduct justified by a legitimate business justification.
The court never engaged in the analysis necessary to answer that question.88 Judge Wood’s opinion did not evaluate whether the conduct
substantially contributed to maintaining Ameritech’s dominant position,
86. Goldwasser, 222 F.3d at 392, 402.
87. In a monopolization case, the court must define the relevant market, determine whether the defendant has monopoly power in that market, and if so, evaluate whether the challenged conduct is predatory or exclusionary—whether its effect was to exclude or limit competition in a way that did not benefit consumers. For an exemplary recent example of this antitrust analysis, see United States v. Microsoft Corp., 253 F.3d 34, 50–78 (D.C. Cir. 2001). In Goldwasser, no one disputed that Ameritech had market power in local telephone service, and the complaint alleged that its conduct violating the Act was predatory, i.e. without a procompetitive purpose and beneficial to the actor only to the extent that it lessened competition on the merits.
88. Some courts have added, in dicta, that antitrust remedies would threaten the elaborate structure of negotiations and regulatory approval created by the 1996 Act. As the Seventh Circuit explained in Goldwasser: “[T]he procedures established under the 1996 Act for achieving competitive markets are [not] compatible with the procedures that would be used to accomplish the same result under the antitrust laws.” Goldwasser, 222 F.3d at 401. “The elaborate system of negotiated agreements and enforcement established by the 1996 Act could be brushed aside by any unsatisfied party with the simple act of filing an antitrust action.” Id.; see also Supra Telecomms. & Info. Sys., Inc. v. BellSouth Telecomms., Inc., No. 99-1706-CIV-SEITZ, 2001 U.S. Dist. LEXIS 23816, at *12 (S.D. Fla. June 8, 2001) (same); Covad Communications Co. v. Bell Atl. Corp., 201 F. Supp. 2d 123, 133 (D.D.C. 2002) (noting a “fundamental incompatibility between the remedial schemes established by the antitrust laws and the 1996 Act”).
nor did it look to whether the company had legitimate business reasons for its conduct. That failure would have been understandable if the court had held that the 1996 Act immunized Ameritech from antitrust liability. But the court forswore any reliance on the implied immunity doctrine.89
Instead, the court declared, without market-specific analysis, that violations of a regulatory statute are not predatory acts under the antitrust laws.90 The court concluded that duties imposed by the 1996 Act “are
precisely the kinds of affirmative duties to help one’s competitors that . . . do not exist under the unadorned antitrust laws.”91 Because
those duties “go well beyond anything the antitrust laws would mandate on their own,” the complaint amounted to an attack on a monopolist for failing to help its competitors and thereby lower prices for consumers.92
Because “the antitrust laws do not impose that kind of affirmative duty, even on monopolists,” the complaint failed to state a claim.93
The plaintiffs countered, and the court did not dispute, that the antitrust laws sometimes do impose positive duties on monopolists to cooperate with competitors. But because all of the allegations were “inextricably linked to the claims under the 1996 Act,”94 the court held that the more specific
provisions of the 1996 Act “must take precedence.”95
Despite its broad language, Goldwasser could be read to establish no more than a rule of careful pleading—that merely alleging a violation of a regulatory statute does not suffice to state an antitrust claim. Instead, a plaintiff must allege with more particularity how such a violation affected competition in the relevant market.96 In most telecom-antitrust
89. Goldwasser, 222 F.3d at 401 (“Our principal holding is thus not that the 1996 Act confers implied immunity on behavior that would otherwise violate the antitrust law[s].”).
90. See id. at 399–400. 91. Id. at 400. 92. Id. 93. Id. 94. Id. at 401.
95. Id.; see also Brief of Amici Curiae United States and the Federal Communications Commission as Amici Curiae at 18, Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir. 2002) (No. 01-16064-C).
The meaning of this passage is unclear, particularly in view of the Seventh Circuit’s express disclaimer of any holding “that the 1996 Act confers implied immunity on behavior that would otherwise violate the antitrust law,” and its acknowledgment that “[s]uch a conclusion would be troublesome at best given the antitrust savings clause in the statute.”
Id. (alteration in original) (quoting Goldwasser, 222 F.3d at 401).
cases following Goldwasser, however, the district courts have interpreted the Seventh Circuit’s opinion broadly to preclude any antitrust claim relating to a violation of the 1996 Act irrespective of the specificity of the pleading.97 For example, Judge Seitz, in Supra Telecommunications & Information Systems, Inc. v. BellSouth Telecommunications, Inc., declared that claims of this sort “extend far beyond the purview of [the] antitrust laws which generally do not require a monopolist to ‘cooperate with competitors.’”98 Similarly, in Covad’s case against Bell Atlantic,
Judge Kessler wrote that the Act “was designed by Congress to spur competition in local telephone markets in ways that the antitrust laws did not require.”99 As a result, an ILEC’s “failure to comply with [the duties
imposed by the 1996 Act] . . . does not constitute ‘exclusionary’ conduct as a matter of law.”100 Following this reasoning, these courts have
dismissed all claims bearing any connection to the 1996 Act without evaluating the conduct under the “rule of reason.”101
97. For example, in Cavalier, the plaintiff took great care to allege its antitrust claims in the traditional way without reference to the 1996 Act. Cavalier Tel., L.L.C. v. Verizon Va. Inc., 208 F. Supp. 2d 608, 611–12 (E.D. Va. 2002). In dismissing the claims, the court rejected the notion that Goldwasser could be limited to a pleading requirement. Id. at 613 (“That Cavalier’s Complaint did not characterize its allegations as violations of the 1996 Act is beside the point. Such a shallow interpretation of the relationship between the 1996 Act and antitrust law would relegate the matter to a mindless word game played out at the pleading stage . . . .”).
98. Supra Telecomms. & Info. Sys., Inc. v. BellSouth Telecomms., Inc., No. 99-1706-CIV-SEITZ, 2001 U.S. Dist. LEXIS 23816, at *11 (S.D. Fla. June 8, 2001). “No court has yet held that antitrust laws now include the affirmative duties created by the TCA and this Court shall decline to do so as well.” Id. at *14; see alsoCavalier Tel., 208 F. Supp. 2d at 613 (explaining that the “specific obligations” imposed by the 1996 Act “extend far beyond the general admonitions against monopolization and anti-competitive behavior expressed by federal antitrust law”); Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 123 F. Supp. 2d 738, 742 (S.D.N.Y. 2000), aff’d in part, vacated in part, 305 F.3d 89 (2d Cir. 2002).
The affirmative duties imposed by the Telecommunications Act are not coterminous with the duty of a monopolist to refrain from exclusionary practices. Moreover, the mere fact that a monopolist has violated another statute does not transform such offense into a violation of the antitrust laws. Thus, plaintiff has failed to allege any “willful acquisition or maintenance” of monopoly power by Bell Atlantic.
Id. (citations omitted); Law Offices of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., No. 00-CIV-1910, slip op. at 6 (S.D.N.Y. Apr. 26, 2001) (“Because [plaintiffs have] failed to allege any anticompetitive conduct on the part of Bell Atlantic, its Sherman Act claim must be dismissed.”)), rev’d, 305 F.3d 89 (2d Cir. 2002); MGC Communications, Inc. v. BellSouth Telecomms., Inc., 146 F. Supp. 2d 1344, 1351–52 (S.D. Fla. 2001) (quoting extensively from Goldwasser and applying its reasoning).
99. Covad Communications Co. v. Bell Atl. Corp., 201 F. Supp. 2d 123, 130 (D.D.C. 2002).
100. Id.
b. Interpreting Goldwasser and Its Progeny
This Subsection considers two possible explanations for the results in the Goldwasser line of cases: (1) that violations of the positive duties under the Act could not be anticompetitive in any context, and (2) that active government oversight renders conduct within the market regulated by the 1996 Act beyond the scope of the antitrust laws. This Subsection concludes that while the first explanation is unsupportable, the second provides the best, though still inadequate, justification for the holdings.
i. The Fully Contextual Nature of Antitrust Analysis
Opinions in the telecom-antitrust cases appear to hold that conduct violating the antitrust laws has certain metes and bounds irrespective of competitive conditions. These lines of demarcation separate collusive conduct and unilateral acts that hinder a competitor’s ability to compete from cooperative behavior that assists competitors. The 1996 Act’s positive duties to cooperate, the courts seem to believe, fall outside the purview of the antitrust laws in every imaginable context.102
Goldwasser surely relied, at least in part, on this line of reasoning. The court emphasized that even monopolists must have sufficient breathing room to compete, and that “[p]art of competing like everyone else is the ability to make decisions about with whom and on what terms one will deal.”103 As a result, “even a firm with significant market
duty created by the 1996 Act. Brief of Amici Curiae United States and the Federal Communications Commission as Amici Curiae at 11, Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir. 2002) (No. 01-16064-C) (quoting various formulations used in Covad Communications Co. v. Bell Atlantic Corp.); seealso Bldg. Communications, Inc. v. Ameritech Servs., Inc., No. 97-CV-76336, slip op. at 20–24 (E.D. Mich. June 21, 2001); Cavalier Tel., 208 F. Supp. 2d at 615 n.3, 616–17 (dismissing the claim based on an “allegation that Verizon employees contacted Cavalier’s existing and potential customers in an attempt to draw business away from Cavalier,” an allegation that the court admitted “does not concern a duty imposed by the 1996 Act”).
102. Covad Communications Co. v. Bell Atl. Corp., 201 F. Supp. 2d at 131 (“[T]here is nearly unanimous consensus that the 1996 Act imposes affirmative duties of assistance that require far more than the existing antitrust laws now require.”); cf. USM Corp. v. SPS Techs., Inc., 694 F.2d 505, 513 (7th Cir. 1982) (“There is a difference between positive and negative duties, and the antitrust laws, like other legal doctrines sounding in tort, have generally been understood to impose only the latter.”). For cases describing the minimum criteria for antitrust liability see Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761 (1984); Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 375 (7th Cir. 1986).
